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Organization Development

ABC and organizational change: an institutional perspective

Profile image of John CullenJohn Cullen

2002, Management Accounting Research

https://doi.org/10.1006/MARE.2002.0186
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Abstract

Using institutional theory to interpret the role of management accounting in organizational change, the paper reports on a longitudinal empirical study of the implementation of an Activity-Based Costing (ABC) system in the Clearing Department of a UK-based multinational bank. Since the ABC project team was operating at the same time as other change agents (productivity consultants and human resource engineering), their interrelationships are explored through the displacement/establishment of routines and institutionalized practices. The extent and nature of organizational change is evaluated by drawing on the dichotomies of formal versus informal change, revolutionary versus evolutionary change, and regressive versus progressive change (Burns and Scapens, 2000). Tensions were identified between the need to establish ABC as an organizational routine thereby ensuring its reproduction with the less routinized but more revolutionary aspirations of ABM. The ABC team succeeded in institutionalizing a less radical version of ABC that revealed new links between costs and products, but did not go as far as to transform the strategic thinking of the bank's senior management.

Key takeaways
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  1. The study evaluates ABC's role in organizational change within a UK bank using institutional theory.
  2. Tensions arose between institutionalizing ABC as a routine and the revolutionary aspirations of ABM.
  3. Data revealed new links between costs and products, but did not transform senior management's strategic thinking.
  4. ABC implementation struggled to progress beyond Stage 3 of cost system development.
  5. The research emphasizes the interplay between management accounting and other change agents in organizations.

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FAQs

sparkles

AI

What are the documented impacts of ABC implementation in non-manufacturing sectors?add

The study finds that ABC introduced significant cost consciousness in the bank, enhancing decision-making through detailed process analysis and highlighting that a normal cheque costs 3p to clear, while a rejected cheque rises to 16p.

How did institutional theory shape the understanding of ABC's role in organizational change?add

The research reveals that institutional theory helps explain the interplay between management accounting practices and broader organizational routines, capturing the uncertainty in ABC implementation outcomes, particularly in an evolving financial context.

What were the limitations of prior management accounting systems in the bank?add

The paper illustrates that before ABC, management accounting was underdeveloped, focusing solely on budgetary controls without linking costs to products or services, leading to a lack of cost-conscious culture.

How did the researcher mitigate bias while collecting qualitative data?add

The researcher employed a participant observation method, fostering close relationships with ABC team members, while triangulating informal conversations with formal interviews and documentary evidence to enhance data validity.

What role did the Human Resource Engineering team play alongside ABC implementation?add

The HRE team acted as an intermediary between management consultants and the ABC team, sharing responsibility for data collection and fostering collaboration, albeit initially struggling to clarify their own objectives.

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